Software Cost & Pricing
In this article I want to give a brief overview of the cost of developing software by Peltmade, and explain how products are priced.
Pricing software is different from the pricing of physical goods. They key difference is that the cost of producing an additional license code is very low. While the cost of developing the software is high. Most of the costs are independent from the amount of products sold.
Software Development Cost
Before you can buy a software product, the software has to be developed. The costs of developing software consists of time, hardware and software.
It takes a lot of time to develop software. Since I quit my job at TomTom 5 years I go, I worked mostly on two products: LrControl and PrControl. So, you could say there is about two years of work in each plug-in. A bit more in LrControl, because I started on PrControl a few years later. I do not write down the hours I spend on each project, so I cannot say anything definite, but I spend a lot of time developing these plug-ins.
HardwareThe cost of hardware is relatively low compared to the investment in time. The hardware is also used for multiple projects, so starting a new product does not require getting a new computer for example. What I currently use are a Mac laptop, a PC with Windows 10 and two screens. I also have a large collection of MIDI controllers that I use for developing MIDI plug-ins.
To develop software you need software. At the very least you need development tools. And for developing plug-ins, you need the host applications for the plug-ins. The most important tools for developing software that I use are Xcode and Visual Studio. These are Integrated Development Environments or IDEs. An IDE is used for compiling C/C++ code and for debugging software written in C/C++. Xcode is free and I use the free version of Visual Studio. There are also a few tools I used that are not free. These are BBEdit, Transmit, Beyond Compare and VM-Ware Fusion. And of course I also have Adobe subscriptions for Lightroom, Photoshop en Premiere Pro.
Cost of Selling
To sell software online, you need a website. This website needs to be hosted somewhere and it must be able to process orders and payments. And once people start using the software, some will have questions and some will encounter problems. So you need customer support.
The cost of web-hosting varies a lot. This website currently uses Dreamhost, which offers good value.
Payment processing is handled by a specialised company. The payment provider takes 5% of the selling price.
Supporting software takes time. And it is extremely important.
Product PricingSo now over to product pricing. We have seen that it takes a lot of time to develop a software product. And the revenue from the product should be such that there is profit. But the cost of developing software does not help much with determining the correct price. This is because I do not know how many product licenses I am going to sell. I do know that if the price is very high, I will sell very few licenses. And lowering the price does not always increase the revenue.
The optimum price for software depends on what the customers are willing to spend on it. So what is the product worth to the customer? Peltmade software is designed to be useful. And useful often means it saves time. And since time is valuable, your investment in software can be earned back in saved time. That is why people who use software professionally generally spend more on software; their time is directly related to money.
So how did I determine the prices for Peltmade products? The Flatten Pro plug-in was $99 for a long time. I thought it was a tool that could save a lot of time, so it should pay for itself quickly. I did not want to charge more that $99 so I chose that price. But over the years there were many people who thought the price was too high. I decided to lower the price to around $49 and €49. That did not increase sales much. So in that regard, $99 was a better price.
For LrControl, I decided to stick with the same pricing. And for PrControl I chose a higher price, because I think there will be a bit less customers than for LrControl, while developing PrControl, was at least as much work. Also the license cost for using Premiere is much higher.
To protect your investment, product upgrades are always free for at least 1 year since the purchase. In practice, the first ever paid upgrade I am doing is LrControl 5.0, which is scheduled to release 4 years after LrControl 1.0. The price for a product upgrade will be lower than the full price.
The prices for apps are relative to other comparable apps.
Providing software as a subscription is extremely attractive for software companies, because it makes the revenue much more stable and predictable. For customers it seems attractive, because the price you pay per month is much lower than the price for a more traditional permanent license, but over time, you pay a lot more. I avoid subscriptions as much as possible, to reduce monthly recurring costs. And as I do not want to buy subscriptions, it makes sense not to sell any either.